UPDATE 2-Argentina raising energy tariffs to fund investment

* Utility companies have long demanded higher rates

* Govt says proceeds will be used to boost output

By Nicolás Misculin

BUENOS AIRES, Nov 23 (Reuters) - Argentina's government will
raise long-frozen utility tariffs to fund improvements for
over-stretched electricity and natural gas infrastructure in the
energy-hungry South American country, officials said on Friday.

The energy sector in Latin America's No. 3 economy has been
beset by surging demand and limp private investment, which many
analysts attribute to low government-imposed tariffs since a
2001-02 financial crisis.

Energy shares rallied in Buenos Aires following Friday's
announcement of increases to gas and electricity prices that
have been virtually frozen for the last decade.

Deputy Economy Minister Axel Kicillof said utility companies
would not benefit from the higher price to be paid by consumers,
however.

"(We want to) create a fund that's sufficiently large to
sustain not only the maintenance of the supply networks, but
also the demand created by the accumulation of capital in
Argentina," he told a news conference, referring to years of
brisk economic growth and rising salaries.

"This isn't going to end up with the companies. It's going
to appear on consumers' bills (and) it's going to constitute a
fund for electricity and a fund for natural gas, which will be
used solely to improve infrastructure in both sectors," Kicillof
said.

The deputy minister, a leftist economist, masterminded the
nationalization of the country's biggest energy firm, YPF
, this year.

HEFTY SUBSIDIES

Kicillof and Planning Minister Julio De Vido said tariffs
would rise from 0.4 percent to 72 percent for household
electricity users in and around Buenos Aires depending on how
much they use.

Consumers in the densely populated Buenos Aires area pay
much less than in other parts of the country, increasing the
cost to the state of hefty subsidies.

The increase will mean monthly domestic bills rise by
between 2 pesos ($0.40) and 75 pesos ($15.60), De Vido said.

Gas bills will rise by between 21 percent and 37 percent
across the country. Business and commercial tariffs will also go
up.

They pointed to relatively low natural gas and electricity
prices in Argentina, where the government heavily subsidizes
utility bills for most domestic consumers and many businesses to
encourage consumer spending.

The government wants to "sustain low tariffs to foment
competitiveness and boost salaries (and) sustain investment in
the sector", Kicillof said.

He said demand for energy had risen 41 percent in Argentina
between 2003 and 2011.

A tariff increase has long been demanded by Argentine
utility companies such as Edenor and Edesur, which is
controlled by Endesa, a subsidiary of Italy's biggest
utility, Enel.

The government fined the two companies $33 million this
month over a huge power cut in the capital during unusually hot
weather.

Edenor shares rose almost 10 percent following the
announcement but later pared their gains to trade up 5 percent
at 0.649 peso apiece in Buenos Aires.